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Part 1
What is generational wealth?
Generational wealth is any type of asset that a family passes down to their children and grandchildren. From investment accounts to real estate, cash and even life insurance, generational wealth is typically viewed through a monetary lens, however anything from education to good financial habits should be considered generational wealth as well.
In today’s financial climate, building generational wealth is more important than ever. There are many benefits to creating legacies in the form of financial education, tuition assistance, business acumen, and funding family milestones like education and weddings.
Generational wealth in Bermuda
The most common assets passed down in Bermudian families are real estate, businesses, cash, investment portfolios, and retirement savings. Historically, real estate ownership and legacy businesses have had the biggest overall, positive impact on the wealth of families in Bermuda. Other strong assets are investment portfolios and life insurance as these influxes of money can be left to further grow wealth.
Outside factors, such as inflation, impact wealth building and can diminish the purchasing power of an asset. This is particularly topical because inflation has reached historical highs and volatility in the markets has increased significantly. This coupled with the financial impacts of COVID-19 on individual and family financial well-being has caused many to be more intentional in setting firm strategies for long term recovery and sustainability of their assets. Lost jobs and untimely deaths have impeded some families’ ability to build wealth due to the loss of income or the unexpected loss of a wage earner within the family because wealth allows households to weather financial emergencies. However, families who had already accumulated savings invested, and had life insurance, tended to fare better than those in lower socioeconomic positions or those who were unprepared.
Addressing the racial wealth gap in Bermuda
Racial issues make up a large part of Bermuda’s complicated history and the long arm of racial discrimination continues to affect families in our community today. Modern Bermuda is a unique space of collaboration and forward-thinking, having made substantial progress towards equality. Yet people erroneously assume that the wealth gap is a product of a bygone era. Accumulating generational wealth has always been, and continues to be, challenging for many members of Bermuda’s Black community.
When reflecting on the issues Black families face today, we can look to Bermuda’s history and its relatively recent past of slavery, discrimination, and oppressive laws. For years, many Black people faced significant challenges in acquiring bank loans for home construction, often being required to reach near completion – having covered the greatest building expenses themselves – before approvals would be considered. This unfair practice effectively hindered them from owning property, while they also suffered unequal access to employment opportunities, and fought for equity in income and benefits. In fact, many in the Black community would argue that through systemic racism, they continue to grapple with financial inequality.
This also highlights the loss of critical, generational knowledge on how to invest and what to invest in. There are fundamental benefits of saving and leveraging life insurance as an asset and the inability to effectively pass on that financial knowledge has resulted in later generations playing catch-up while other parts of the community continue to flourish.
What programmes or recourse exist for Black Bermudians?
While we’re seeing positive trends in wealth growth in Black communities, like greater home ownership, increased entrepreneurship, increased investable assets and the utilisation of trust agreements to manage wealth, our main concern is that education and awareness is still lacking within the communities for which they were created.
Want to get started on building your wealth? There are many resources available, including courses in financial literacy at Bermuda College, financial advisor services, banking and legal services for wills and trusts, and private companies’ product offerings in the financial industry. And, of course, we are here to assist and answer any questions.
In Part 2, you’ll find out how to grow wealth if you’re starting from scratch, how to prevent mismanaging money and what experts are recommending for your financial wellbeing.
Part 2
In Part 1 we covered building generational wealth and how race plays a part in Bermuda’s wealth gap. Now, we’re back to talk about how to grow generational wealth from scratch and how to stay on track for financial success.
It is estimated that 70 per cent of families lose their wealth in the second generation and 90 per cent lose it in the third. Those numbers are alarming but preventable. A successful investment strategy begins with understanding how your money can work for you and learning how to maximise your hard-earned cash. The most important step towards sustainable savings is teaching those lessons to the next generation.
This opinion piece originally appeared in The Royal Gazette on August 28, 2022.
How to grow generational wealth, even if you are just getting started:
1. Start with a plan: creating a family financial plan which includes diverse sources of income, such as investments and real estate, should give you a clear picture of your present and future position. It’s OK to start small, with a plan and a budget, followed by a long-term plan to grow your retirement savings and secure life insurance to protect your future
2. Seek professional support and education: you can find good free financial advice online, but you can also seek guidance from your banker, your insurance and pension providers, as well as financial advisers who can dispel any fears you may have around financial matters and quickly get your money working for you
Remember that generational wealth is not defined by how much money you have. It is not defined by a trust fund, piece of property or inheritance. It can be as simple as a parent teaching their child how to budget, helping with a down payment on a home or contributing to your grandchild’s college tuition. If you have inherited wealth, don’t try to figure it all out on your own.
When you identify what you don’t know, it is easier to find professionals that can help.
Creating an emergency fund and growth options for your money
Aggressively saving for emergencies, investing wisely and considering multiple streams of income will yield the best results for growing wealth. It is a myth to assume you can invest only if you have a large amount of money. Planning for your children’s education, purchasing a home and saving for retirement are the three most common financial goals, and require different timelines and financial tools. There is no one-size-fits-all solution. Create different systems to meet your unique needs, such as utilising a savings account to accumulate funds for a down payment on a home or leveraging an investment portfolio to fund your retirement. Consider sectioning your money into separate financial goals and creating a growth timeline for each one.
Traditionally, people have seen banks as the primary option for financial security but there are many ways to use other sources for financial growth. For example, subscribing to employee benefits that can enhance your savings. This may include share purchase plans, matching plans, stock options and, most commonly, adding additional contributions to your existing pension plans — a low-cost way to invest for mid and long-term goals.
Key points to action your wealth growth:
1. Be prepared: have a clear personal wealth plan as well as a strategy for long-term family financial wealth. It is important to map out how you will save, invest and spend your money each year. If possible, create multiple streams of income
2. Invest wisely: invest what you can and invest early, but ensure you speak to a qualified financial adviser who can guide your investments and help you understand what you are comfortable pursuing and how much it is going to end up costing you
3. Communicate: educate the younger generations, update your beneficiaries and your will, and pass on any lessons to younger family members
4. Seek professional advice: a professional can help you meet long-term investment goals, ensure that you are diversified and have a plan designed for your personal financial needs. It is also helpful for discussing impactful financial decisions, such as whether to rent or buy a home and how insurance policies, retirement pensions and wills can assist a family in retaining wealth
5. Have an emergency fund: this is the most important piece of advice. Create a savings account that is not tied up in investments — a sum that is accessible at any time with no penalty in case of emergency.
Taking these actions can be financially freeing and a stepping stone towards long-term security.
Nurturing your generational wealth leaves more room for what matters most: you and your family.